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Jonas Elmerraji
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Jonas Elmerraji is the editor and portfolio manager of the Rhino Stock Report (http://rhinostocks.com), a new investment advisory that made 15% in 2008. Jonas is a contributor to numerous investment publications, including Forbes, TheStreet.com, and Investopedia.
My company:
The Rhino Stock Report
My blog:
rhinostocks.com
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  • The S&P 500’s Next Stumbling Block and The Fed’s Foul Play
    There’s no question that 2010 is already proving to be a tough year for stocks. Until this week almost all broad-based stock indexes were down close to 5% on the year, and economic fundamentals don’t seem to be improving much either. That said, not all stocks are having as rough a time of it…

    We’ve added two new positions to the Rhino Stock Report’s model portfolio in 2010 – both are currently up on the year with an average of 8.6% gains. But the S&P’s next stumbling block could keep us from adding a third position until March. Here’s why:



    A colossal breakdown in the S&P 500 in mid-January caused the index to fall below the 50-day moving average, a key technical support level. And although the market has staged a serious comeback in the last couple of weeks, that 50-day moving average could prove to be too tough of a resistance level right now.

    With emphasis on economic numbers – like interest rates and jobs – this week, the fundamentals are driving the market. Since our economic fundamentals have been anything but bullish this year, the chances of seeing a break above the thin blue line are diminished.

    That’s not to say that the S&P won’t move above the 1109 level next week – only that it’s going to take more bullish power than we’ve currently got on tap. For us, that means that we’re not going to make any new moves until we see a bounce off the 50-day or a breakout above it. (To learn why that’s significant, watch Planning Your Entries and Exits With Technical Analysis)

    The Fed Fouls the Markets

    Stocks are trading lower today thanks to the Federal Reserve’s decision to increase a peripheral interest rate after yesterday’s market close. To be clear, the rate (which dictates how much interest banks must pay out in emergency loans) doesn’t have much of an effect on monetary policy – but the change still has investors shaken.

    That’s because a rate increase of any sort was so unexpected. The Fed slashed interest rates following 2008’s financial meltdown in order to lower the cost of capital and add liquidity to the seized-up credit market. An increase suggests that economic fundamentals are improved enough to increase the cost of borrowing – something that investors don’t see right now.

    Although it’s unlikely the Fed will hike more significant rates, expect investors to continue to be anxious until the next bout of economic numbers comes out and they forget about rates once again…

    Our Big Earnings Week

    Next week is a significant week for a few of the companies in our Rhino Stock Report model portfolio. Three companies – NRG Energy (NYSE:NRG), J.M. Smucker (NYSE:SJM), and SPX Corporation (NYSE:SPW) – will announce their quarterly numbers to the public. I’m optimistic about all three stocks, so don’t expect a significant change-up in our portfolio positions next week.


    Disclosure: NRG, SJM, and SPW are holdings in the Rhino Stock Report's model portfolio.
    Feb 19 10:48 AM | Link | Comment!
  • The Fallout From Friday's Slide in Stocks

    I just wanted to post a quick weekend update now that the market went ahead and did exactly what we didn’t want it to — crash below the key 1114 level for the S&P 500.

    In Friday morning’s market update, I talked about how the S&P was likely to test support at its 50-day moving average — around 1114 as of that writing. Sure enough, the market opened mixed and flirted around that level for most of the day — until later in the afternoon when it fell hard, seemingly out of nowhere. The economic fundamentals were decidedly bearish last week thanks to poor bank performance, despite the fact that good earning numbers were solid for most other industries. Still, I’d hoped that we’d see stocks hit the brakes around 1114.

    So, what’s the verdict now? Let’s take a look at a chart…

    There was no question going into Friday that stocks were getting overbought — we needed a cooldown in momentum to sustain any kind of rally. The best case scenario would have been a few point-lower close on Friday right at the 50-day (thin blue line in the chart above), followed by a week or two of sideways movement. Instead, we saw shares tumble hard on Friday right down to uptrending support (dashed blue line).

    Luckily for us right now we’ve got a meaningful support level right at 1080 and full stochastics (a measure of momentum) is showing the market not far from being oversold. Those are both good indicators that we’re not headed significantly lower this month. To be sure, the fact that we broke through 1114 so fast isn’t fun, but like quickly ripping off an old band-aid, at least it means that the worst is likely over for now.

    And with the worst of the financial stocks’ earnings releases behind us, better numbers next week could fuel price stabilization.

    So, all of that said, what does it all mean for new Rhino Stock positions? Obviously we won’t see that bounce off of the 50-day that would send a “buy” signal, so instead, we’re going to have to wait for some sort of definitive support signal. We’ve added enough to our portfolio lately to keep our stock appetites satiated for a while. We’ll stay disciplined and defensive in the mean time.



    Disclosure: Disclosure: None
    Jan 24 12:07 PM | Link | Comment!
  • Friday Market Recap: The Failure Zone Returns and a Dubai Update

    Now that we've had a chance to decompress a bit following last week's Thanksgiving holiday in the U.S., and with a couple of market breaks – Christmas and New Year's Day – coming up in the next month, it's time to take a look at where the market's heading and how we're going to position the Rhino Stock Report portfolio in 2010.

    One look at the chart below should bring back some memories...

    Enter the return of the "Failure Zone." In the Friday Market Recap before Thanksgiving, I talked about the Failure Zone and why it was such a crucial area for the way stocks would move in the short term. We touched on two scenarios: a break above those two red lines, and a break below. What I didn't mention was what the implications were if the market decided to bounce in between them for an extended period.

    But that's exactly what's happening right now.

    Often, sideways consolidation points to a continuation of trend, which means that we'd expected the rally to restart after charging its batteries for a bit. But over a shorter period, that sideways movement has been volatile -- volatile enough to expect the previous recap's rules to still apply.

    So, did anything change since last week? Yes indeed. The market may be granting itself a reprieve from a move down to support -- at least from now. If consolidation continues long enough to cool the overextended momentum of the market, it's quite foreseeable for the rally to move on unscathed.

    Until we're tipped off either way, I'm inclined to stick with the status quo as far as our Rhino Stock Report positions are concerned. That means we'll be adding another new position this month.

    Now Onto Some Market Fundamentals...

    Dubai has been in the news lately because the country asked for a break on some of its $60 billion debt. To be clear, we're not talking about sovereign debt, but rather loans made to Dubai World, an independent financial arm of the emirate.

    But that doesn't mean the effects of the debt standstill won't be painful for investors. The group controls some of Dubai's most famous real estate, including the Palm Islands, and the under-construction Nakheel Tower, the world's tallest building.

    While much of Dubai World's debt is owned by banks in the West, U.S. financials don't bear the brunt of the financial burden for a change. Instead, U.K. and European-based banks are holding the bag until the United Arab Emirates decides to step in with yet another bailout.

    Independent agencies are currently rating Dubai World's risk of default at under 40%. We'll see how things unwind.



    Disclosure: No Positions
    Tags: SPY, Dubai
    Dec 03 8:18 PM | Link | Comment!
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